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Cash and cash equivalents

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CASH AND CASH EQUIVALENTS DISCUSSION What is cash? Cash includes money and any other negotiable instrument that is payable in money and acceptable by the bank for deposit and immediate credit. Accordingly, cash includes checks, bank drafts and money orders because these are acceptable by the bank for deposit or immediate encashment. What is the meaning of unrestricted cash? Cash must be readily available in the payment of current obligations and not be subject to any restrictions, contractual or otherwise. What is the meaning of cash equivalents? Cash equivalents are short-term and highly liquid investments that are readily convertible into cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Only highly liquid investments that are acquired three months before maturity can qualify as cash equivalents. Examples of cash equivalents: a. Three-month BSP treasury bill b. Three-year BSP treasury bill purchased three months before maturity date c. Three-month time deposit d. Three-month money market instrument Equity securities cannot qualify as cash equivalents because shares do not have a maturity date. However, preference shares with specified redemption date and acquired three months before redemption date can qualify as cash equivalents. Explain the valuation of cash in the statement of financial position Cash is valued at face value. Cash in foreign currency is valued at the current exchange ra ...
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